By Jim Williams
A short work week is long on news as we approach Friday’s inauguration when President-elect Donald Trump can drop the ‘elect’ from his new title.
The Dollar is “too strong”
That is how the week started. How it ends will have everyone around the world watching.
In an article in the Wall Street Journal, Mr. Trump said the strength of the US dollar against China’s yuan “is killing us.”
That spurred a ferocious selling spree among traders and investors, sending the dollar to its lowest level against Japan’s currency in almost two months.
The dollar surged at the end of 2016 on expectations that fiscal stimulus proposed by Trump would boost growth and inflation, and lead to a faster pace of U.S. interest rate rises.
Fed Chair Janet Yellen’s speech today to the Commonwealth Club in San Francisco could offer clues about the direction of policy.
The Impact on Copper
Analysts expect copper to continue to surge, at least through the first few months of Trump’s administration as his economic blueprint takes shape.
“The planned economic program of the new U.S. administration will likely become clearer over the next few months, as will the pace of the Chinese economy expansion,” S&P Global said in a note after lifting its 2017 copper price forecast by 4.5 percent to $5,705 a ton. “These are two key variables for copper price dynamics.”
S&P’s prediction was part of a survey of 22 investment banks and other commodity research institutions released by FocusEconomics on Tuesday. It appears analysts and investors are far from optimistic about the prospects for the metal over the rest of the year.
Despite 13 of the analysts polled raising their previous forecasts for the copper price by the end of this year, of those polled only a handful sees copper averaging the final quarter of 2017 above the current price. The consensus forecast for the average over the whole of 2017 is $2.37 a pound ($5,234 a ton), rising only marginally in 2018. The most bullish prediction was by Unicredit which sees copper averaging 2017 around $2.77 ($6,100). While JP Morgan forecast is on the other side of the spectrum – the bank sees the red metal falling to $2.13 ($4,700) by the end of the year with an average below $5,000 in 2017.
As a reference, copper averaged $2.21 ($4,871) in 2016 making it the fifth year in a row that the copper price averaged below the previous year.
Supply and Demand
tED contributor and commodities expert Andrew Hecht of Seeking Alpha, says copper looks ready to challenge the late November highs at just over $2.75 per pound, but…
“As the chart below shows, copper stocks hit highs at almost 380,000 tons in September but they declined to under 220,000 by late November causing the price to take off to the upside,” points out Hecht. “Inventories quickly rose in December only to fall again as the end of the year approached and into the beginning of 2017. Copper stocks on the LME were at the 285,700 ton level as of January 12.
“(The price of copper) may depend on the trend of inventories over coming weeks,” adds Hecht.
Angel Commodities, a well-respected Stock Brokering and Wealth Management company out of India, expects copper to trade moderately higher this week, but not too high as investors will most likely limit their appetite for risk leading up to Friday’s inauguration.
Please check back next week to see what impact the first few days of the Trump administration has on the price of copper.
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